Upcoming EU regulations must be careful to incentivise green hydrogen production at the right speed while also supporting other varieties of the fuel, according to a panel of experts speaking at an event organised by the Florence School of Regulation this week.

The development of green hydrogen—rather than the blue or grey varieties—is a seen as a priority for many EU member states because it  is the form of the fuel most aligned with the development of a decarbonised economy.

“We believe the tenders for capacity should be technology-neutral” Jones, Florence School of Regulation

But the EU also needs to develop an internal market for hydrogen, which means developing different types of capacity.

“We believe the tenders for capacity should be technology-neutral,” says Christopher Jones, a professor at the Florence School of Regulation. “You simply want to create capacity for hydrogen at the lowest cost.”

Green hydrogen production in Europe costs at least twice that of other forms of hydrogen production. Subsiding output at that level while meeting hydrogen targets could lead to an extra €8bn ($9.7bn) a year in costs, according to analysis by the Florence School of Regulation.

“That money could be more effectively spent elsewhere, for example on energy efficiency,” says Jones.

Instead, capacity tenders should be neutral, while green hydrogen projects should still be incentivised at an R&D level with the hope that costs will then fall to be competitive by themselves.

But that in itself might be difficult. Currently, only three countries in the EU have an electricity supply adequately decarbonised to meet the EU requirements for sustainable hydrogen. And renewable projects are unlikely to sell to green hydrogen plants at the required discount for the fuel to be competitive when they could be selling into electricity markets for better returns.

There are also issues of additionality, whereby projects using high levels of renewable generation could simply be triggering additional fossil fuel generation elsewhere on the grid.

And some renewable generation based on solar panels produced in China using coal-fired generation is much less sustainable than renewable generation produced via other means.

Targeted legislation

The EU has two pieces of upcoming legislation that will attempt to tackle these issues. The first, due on 14 July, will tackle market-related problems. The second, due in October, will tackle network-related issues.

“It is important to have clear thresholds on renewable production modes,” says Jorgo Chatzimarkakis, secretary general of trade association Hydrogen Europe. “Guarantees of origins (GOOs) are essential too.”

As well as a clear taxonomy and GOOs that prove how sustainable hydrogen production is, the development of a hydrogen market will require dedicated state aid guidelines that outline how capital expenditure support for hydrogen projects should work. It will also likely require Contracts for Difference to support operational expenditure.

“We believe the tenders for capacity should be technology-neutral,” Jones, Florence School of Regulation

GOOs must include the primary energy source and the greenhouse gas footprint of the fuel, and should be traceable and tradeable. The system should also be applicable internationally to facilitate the trade of green hydrogen with other regions such as the US.

“Then you have the infrastructure of converting large parts of natural gas infrastructure into hydrogen, CO₂ capture infrastructure, ammonia infrastructure and water infrastructure,” says Chatzimarkakis.

At the same time, the EU must encourage demand-side growth through the rollout of hydrogen fuelling networks for vehicles and also by providing finance for industrial pilot projects that use hydrogen instead of coal in their processes.

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Author: Tom Young